By Kathy McSherry
(Editor’s note: Mission Valley News introduces a question-and-answer column by Kathy McSherry titled “Ask Kathy,” designed to answer reader questions about local real estate issues.)
My husband and I have recently moved to Mission Valley from San Francisco. We chose this area because it is centrally located to my husband’s work Downtown and my research work at a bio-medical company in Sorrento Valley. Our combined income is over $100,000 and we have little debt. My husband also has a Veterans Affairs (VA) certificate. Our concern is that we’ve heard that it is a seller’s market. What exactly does that mean and how does that affect us?
– Marianne G.
What a great question. The definition of a seller’s market for any economic situation is one in which goods or shares are scarce and sellers can keep prices high. In real estate, it simply means that there are more buyers than homes for sale, thereby making it a great time to sell your home; versus a buyer’s market when more homes are available than there are buyers; and with much to choose from, prices tend to be lower. However, there’s a real estate riddle that I happen to love.
Question: When is the best time to buy real estate? Answer: Yesterday.
Question: When is the second best time to purchase real estate?
Real estate can be a great investment. In order to make money with it, you have to get into the game. Even when interest rates rise and it becomes more difficult to qualify, you still have to purchase to be able to see any benefits. Back in the 1980s, the Coronado Cays were selling for $90,000 and interest rates were 16.9 percent. People today can’t fathom such rates. Yet fast forward to present and some of those same properties are valued over $1 million. That’s a pretty big return on investment for one’s initial purchase, even at those high rates.
Marianne, you have many things in your favor right now. As of Jan. 1, 2016, the new VA loan amount increased to $580,750. This means that someone with a VA certificate, if qualified, can purchase a home up to the purchase price being $580,750 with no money down.
In addition, there is no mortgage insurance on this type of loan, which is a huge savings on your monthly payment. Most conventional loans will tag on mortgage insurance when you put anything less than 20 percent down. This is because you have less “skin in the game” with your own money and are viewed as more of a risk to the lender.
With interest rates at historic lows, you are in a perfect position to get into the game and own a home. Rents in the Civita master planned community, north of Friars Road, can range between $1,800 to $4,100 per month. Many people do not realize that they could be paying about the same per month, and yet own a home. Also, if the purchase price of the home is over the $580,750, then a VA buyer only has to come up with 25 percent of the difference between the purchase price and the VA loan limit of $580,750.
For example, let’s say a new condominium costs $650,000. The VA buyer takes the difference between the purchase price of $650,000 and the VA loan amount of $580,750. That would be $69,250. The minimum requirement for a down payment would be 25 percent of this, or $17,313. Compare that to an average buyer that would have to qualify for a conventional loan with 20 percent down payment and they would need $130,000, in order to get a loan with no mortgage insurance. This is a basic example as many criteria are considered when qualifying for a loan including, credit, income and debt.
I would recommend sitting down with a loan officer at your bank or a credit union and give them all of your information so they can go over all of the payment options and costs that are associated with your type of loan. They will ask you for what we call 2-2-2’s. Two years of W2’s, two years of taxes, and two months of current bank statements.
The benefits that you get with home ownership include tax deductions, pride of ownership, privacy, long-term investment and a chance to build equity. Whether a seller’s market or a buyer’s market, you got to be in it to win! That phrase isn’t just for lotto, but real estate as well.
—Kathy McSherry is a veteran Realtor in Mission Valley with Coldwell Banker West. Email questions to her at email@example.com.